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14.9.2007

Lack of incentives hamper foreign investment to Finland

Tags: Uncategorized — Author: @ 3:04 pm

Finland ranks 20th out of the 27 EU countries in foreign investment. The culprits? High taxes, homogeneity, cold dark weather, and low-tax Estonia. It’s all here in Financial Times’ “Foreign investment: Lack of incentives hampers FDI flow“…

Led by companies from Sweden, Germany, the UK and US, sectors such as banking and services have been transformed by the foreign investment.

But appearances may be deceptive. Matched against its peers, Finland’s performance in attracting foreign direct investment has been relatively disappointing – much to the frustration of officials – and presents a significant challenge for the new government.

“The paradox is that our competitiveness is good and still we lag behind [in FDI],” says Risto Paaermaa, deputy director-general of the ministry of trade’s industries department.

Between 2003-2005 the country’s stock of foreign direct investment was an average 29 per cent of gross domestic product, according to the Organisation for Economic Co-operation and Development (OECD).

This puts it well in the bottom half of the rankings that are headed by Ireland – another small country on the fringes of the European Union that has developed a dynamic and open economy. Among the 27 EU countries, Finland ranked 20th in 2005.

Even Tuomo Airaksinen, head of Invest in Finland, whose job it is to attract investment, acknowledges that while the world has seen strong growth in FDI in recent years “we have not participated in that”.

[...]The reasons for Finland’s relatively sluggish FDI performance are manifold.

In business circles high rates of personal tax are commonly cited as a problem. Most analysts agree that the things that make up Finland’s potential attractiveness to investors – size, location and homogenous society – are also part of the problem when it comes to attracting FDI.

With a population of just over 5m, Finland boasts one of the more nimble and well-regulated economies of Europe that has been able to successfully exploit the advantage of being part of a bigger single market and currency union. That has boosted the opportunities for Finnish business. But in terms of the attractiveness of Finland itself, it remains a small part of bigger whole.

The homogeneity of Finnish society contributes to its stability, but can also make integration difficult.

“Doing business here is no problem, but for the families – it is not always easy for families,” acknowledges Mr Airaksinen.

Geography is also a drawback. While proximity to Russia and the much smaller Baltic markets has certain advantages, the fact remains that Finland is still located on Europe’s fringes.

One Helsinki banker asks: “Why would anyone invest here?” He says: “Yes, this country has functioning infrastructure. But there might be better places to base your company than close to the Arctic Circle.”

The proximity of countries, such as Estonia, that offer markedly lower taxes and labour costs has further eroded Finland’s ability to compete. The growth and development of Russia poses a further competitive threat for the future.

With taxation the problem lies with income tax. Corporate tax rates of 26 per cent are quite competitive.

Top-end personal tax rates of close to 50 per cent are less so. “This is a heavily taxed country – it’s not easy to attract foreigners here because of high personal taxes,” says Henrik Andersin, chairman of Evli Bank, an investment bank.

  • http://www.verosirkus.com Sirkuspelle

    One Helsinki banker asks: “Why would anyone invest here?” He says: “Yes, this country has functioning infrastructure. But there might be better places to base your company than close to the Arctic Circle.”

    There are better places that treat your money and investments with privacy as well, such as any other country in the EU. Do investors want their capital gains from Finland sold and published in magazines, then spread around in the Internet.

  • Passer-by

    Totally offtopic: Phil, were you at HUT in Otaniemi today? I think I saw you at the main building, or then it was your long lost twin brother.

  • Anonymous

    The advantages or disadvantages, depending on your point of view, of a society like Finland are diverse, and more often than not a consequence of Finland’s history. The Finnish society in terms of origin, attitude and way of thinking is not completely (Western) European, there is a relatively strong influence from and orientation on what’s geographically on the right side of the European Union. This may lead to rather peculiar situations; Finland is for example part of the EU, but not part of NATO. Changes in Finland, particularly in the area of government, are typically the result of copying policy from neighbouring countries (from Sweden in the past, for example), are imposed by EU laws and directives and “injected” into society by workers from other Western countries. I am sure you can extend this list, but the message is that change in Finland is an external thing rather than an internal thing. To say it bluntly, Finns generally do not like change and are only willing to change when there is really no other option. (For all Finnish readers; yes, I know, not all Finns are like this). This does perhaps not always lead to the best solutions from a Western perspective, but it fits in the context of Finland and as such can be seen as fitting for Finland. Whether you think this is a good thing or bad thing, that is just a matter of perspective; Finland has it merits, just as any other culture.

    What I am trying to say is that many of the topics on this forum can be explained by looking at Finland’s past rather than by trying to reason about what should or should not be. What you think should be is, after all, based on your background and past as well ;-)

  • Passer-by

    That’s a very good post from Anonymous. I’d actually like more blog posts concerning Finnish history, the context, comparisons to neighbouring countries, not US or Kristian’s Germany.

  • Punter

    Yes indeed, Finnish history would make for interesting reading except for the fact that they don’t like to talk about it openly and are generally closed to any historical opinions other than those that have been “learnt” in the Finnish State school system.

  • Anonymous

    Belgium gets more investments than any other European country. Must be because of the low taxes, let me check. Oh yes, the third highest.

  • tsuhna

    I’d say that Finland has gone through bigger changes lately (during the past 70 years or so) than about any other West-European country. I _would_ say but that would mean disagreeing with the anonymous post above and that is, as Punter wisely noticed, impossible for us brainwashed zombies AKA Finns.

  • tim73

    Yes, we would like to be more like hmmm…Baltimore. Population: 631 000, homicide cases (2005): 269.

    In whole Finland there were 114 homicide cases that year (population 5 300 000). So we really have to step up the killing spree, at least 2000 per year. Actually, Phil should be a consultant for our army boys, having being in an actual killing field. :)

  • Kristian

    Belgium gets more investments than any other European country. Must be because of the low taxes, let me check. Oh yes, the third highest.

    Belgium is centrally located and acts as a hub for transportation and various other services to the EU. Because of this, it can’t easily avoid FDI. However, let’s keep in mind that its geographic location also means that management teams don’t actually need to live in the country; instead, they can benefit from living in the low-tax- and low-consumer price- environments of Belgium’s neighboring countries.

    And for those key personnel who actually need to live in Belgium directly (and use it as their tax home), I’m sure their companies pay them extra to compensate for the smaller net income they’d otherwise receive and higher living expenses…and of course that means less money left-over for the lower-income workers.

    Once you realize that, you tend to look at progressive income taxation in a whole different light.

    With taxation the problem lies with income tax. Corporate tax rates of 26 per cent are quite competitive.

    Yes, that’s part of Finland’s ‘key to competitiveness’ that they don’t tell you about—reasonable corporate tax rates to attract big companies to reside/remain in Finland; but then REALLY high income and VAT taxes that the individual workers pay. So Finns live in tiny flats, drive old cars and have little money invested.

    Insofar as not attracting high amounts of FDI and resident investors, I’ll agree entirely with Sirkuspelle: Who would move to a country where their personal income and wealth data is offered to the public? And traffic cops looking at their personal finances to determine ticket amounts???

    As an investor, you’d have to be an idiot. Talented people with money will never move to some country with commie laws. They want to be treated in a respectful manner. Finland will remain poor until it realizes these basic things.

  • Punter

    Ummm, thanks for that insight tim73

  • Thomas

    Kristian:

    “And for those key personnel who actually need to live in Belgium directly (and use it as their tax home), I’m sure their companies pay them extra to compensate for the smaller net income they’d otherwise receive and higher living expenses…and of course that means less money left-over for the lower-income workers.”

    What is the MAJOR obstacle in the way of finnish companies/foreign companies in Finland, if the income tax is yet again such a big problem in getting these invaluable foreigners here to do the work? Why can’t they do the Belgian thing? There’s no “commie law” against that afaik. And why are they needed anyway, they’ll probably use their work time complaining/moaning/bitching endlessly in this forum anyway. Much like you and your kind Kristian. And what good will that do.

    As far as “less money left-over for the lower-income workers.” it is more a question of whether people like Andersin are ready to spare some scrubs of their million euro bonuses/capital gains to the less fortunate. But – of course – that is completely out of the question. The MARKET (this mythical god) directs these things, no-one else. So it’s really out of the hands of Mr. Andersin and his like. They HAVE to take their share of the cake.

    “Insofar as not attracting high amounts of FDI and resident investors, I’ll agree entirely with Sirkuspelle: Who would move to a country where their personal income and wealth data is offered to the public?”

    Who wouldn’t. What the hell is the reason for somebody to conceal their income? Unless there is a need, be it fear of being demonstrated as overpaid. Or simply a need to cover your illegal activities. But of course, both securing the extra cost for consumers ensured by the overpaid, and securing the ground for further illegal activities by criminals, is something Kristian greatly wants to promote. In the name of “Germanity”.

    “And traffic cops looking at their personal finances to determine ticket amounts???”

    So you actually subscribe to the idea of fines being equal in terms of the “daily income info/päiväsakko” used as base for fining in Finland. When will you start an endless – and amusing – campaign to introduce the poll tax in Finland?

    “As an investor, you’d have to be an idiot.”

    It’s enough to be greedy. And bitch and complain about every fucking thing that society doesn’t give you for free.

    “Talented people with money will never move to some country with commie laws.”

    Define “commie laws”. Is it only taxing you’re after, or is the law in e.g. rape cases also “commie” as compared to the countries you so much like? Or is it the level of punishment you envy. Like “bring back the death penalty” etc.?

    And why would investors have to MOVE to a country they invest into. Are you out of your mind? Ever heard of the internet? The people that would move to Finland wouldn’t be the INVESTORS, but potentially their employees. Most likely they would hire finnish people.

    And the investors are mostly established companies, that NEED a representative in Finland. How many (foreign) companies do you know of, who’ve developed any of their core skills in Finland? That’s not because of taxes, that’s simply “strategy”.

    “They want to be treated in a respectful manner. Finland will remain poor until it realizes these basic things.”

    Oooh. So “non-commie laws” are laws that treat “foreign investors” respectfully. Meaning: they should pay no tax (unlike citisens), they should be allowed to speed on the roads freely, …

    Funny enough, some “investor friendly” countries (much preferred by people like Kristian) have mandatory death penalties for drug trafficking, caning as penalty for spitting on side-walks, … Are these the kind of “non-commie laws” Kristian looks forward to?

  • winter “Yea, Proton Power, now in remission”

    “That’s a very good post from Anonymous.”

    he missed the explanation of why Finland supports Thugs and Killers in Lebanon as Human Shields for Iran. Just where in your past have you done that?

  • philtard

    #12

    Because jews made us unattractive for foreign investors on the global marketplace.

  • Punter

    Thomas, you have reached new levels of strangeness here, something even I’m amazed by. I wonder if you understand anything Kristian said?
    As far as disclosing income “being overpaid” is one of your points. In Finland? Are you joking? Do you ever follow what we on the otherside are saying? “Covering up criminal activities?” Give me your bank account info too please and your PIN while you’re at it. Come to think ofit, why not post them here along with a copy of your signature and family details. Now I’m no criminal I can assure you but if you think publicising such details as our tax/income will prevent criminal activity then lead by example and post your details. We’re all waiting.
    As for the death penalty/caning punishment, does Finland still have laws in peacetime allowing for punishment by death for treason? I know of a red haired lady in Finland that may have a case to answer for based on new information. I think she’s already been hit by a stick so bring out the rope I say.

  • philtard

    #11

    You have to understand the only way americans can survive their miserably stupid, fat and culturally void country is to make it a religion.
    Then if you just chant “america is the best country on earth” long enough you finally start believing it.

    And all the poverty, killing(domestic and abroad), corruption, hopeless stupidity and looming end (when china gets tired with them) will go away if you can just point at one stretch in the driveway of a big mcmansion, because if somebody has money it means everything is okay.

    #5 and what exactly are those things that need additional versions of the finnish history?

  • Anonymous

    The market outs.

    Finland’s education and competitiveness is obviously not as good as the dodgy statistics suggest.

    Entrepreneurs motivated by self-interest would be flooding into Finland to take advantage of the education system and the competitive environment if the PISA and international competitiveness stats were true. Let’s make profit!

  • Punter

    #15- Try to discuss Finlands performance in WW2, co-operation with Nazi Germany, Porkala and Soviet occupation post WW2, Kekkonen times hell even modern matters such as THE STASI LIST and the current President’s involvement and all you get is either the Party Line or the standard “you don’t know/understand because you’re a foreigner” reply.

  • tsuhna

    Finland’s education and competitiveness is obviously not as good as the dodgy statistics suggest.

    Yes it’s been established here many times that both the statistics and tests are forged by the Finnish authorities. What’s more, in the PISA study los pupilos were told the right answers beforehand. Finland’s competitiveness also sucks, lately the economic growth has been faster in Irelan. That’s unbearable. What’s neext? USA’s economy growing faster!!! Then I’ll get the hell out of the country the latest.

  • http://www.verosirkus.com Sirkuspelle

    @18: Finland’s education and competitiveness are obviously not incentives enough to move or invest here.

    The Finnish peoples’ lack of interest in “who you are” as opposed to “what you have” leads to a horrible lack of hospitality. In my first 7 years in Finland, in the city I was living, I was invited into a local Finnish person’s home twice. I was invited over to eat 1 time. The times I visited someones home otherwise were mostly when I was visiting my wife’s family and relatives.

    My good friend from Australia from those times told how when he got back from Australia, he noticed the cultural difference of how people would immediately look at what kinds of clothes he was wearing, not really caring about who he is or what kind of guy he is.

    Fortunately, now I live in a countryside village, where people are genuinely friendly, work together, help each other, and so on. The kind of Finland I wish I had from the beginning.

  • http://www.finlandforthought.net Phil

    Totally offtopic: Phil, were you at HUT in Otaniemi today? I think I saw you at the main building, or then it was your long lost twin brother.

    Nope, wasn’t me. If you see my twin brother again, take a photo! I’ve never met anyone who looks like me, then again, I haven’t met Brad Pitt yet :-D

  • Passer-by

    Nope, wasn’t me. If you see my twin brother again, take a photo! I’ve never met anyone who looks like me, then again, I haven’t met Brad Pitt yet :-D

    Roger that. By the way, that new mug shot is pretty scary.

  • philtard

    #17

    Well I’ve never found those topics hard, they are even covered very well (with several point of views) in the history classes.

    The only thing finnish people are hard to accept with history is the hypocrisy you get from people in countries that didn’t have to pick between ussr and nazi germany and that didn’t have to subsequently live as the neighbours of soviet union.
    Given the circumstances Finland came out the best way possible from the war.

    And at least the stasi-list generates some actual conversation and investigations here, where as american leaders don’t even bother being coherent in their statements because they know the majority of voters can’t read the first chapter of a simple book.

  • Punter

    #22- Have you ever thought about changing your posting name? Keep the ending but the phil part………?

  • tsuhna

    You have to understand that Punter comes from a culture in which critical and analytical thinking is not encouraged in schools. Coherent discussions, from our viewpoint, are pretty much impossible. They tend to think that an insult is a good argument, for example, or anything that fits any prejudice they happen to have been taught.

  • http://www.finlandforthought.net Phil

    By the way, that new mug shot is pretty scary.

    Yeah, I need to hunt down something better. I’m not very photogenic. :-)

  • Anonymous

    @17: You’re not being totally fair. Any serious student of history is open to dialogue, examining different viewpoints and new interpretations, even Finnish ones ;) . The problem has been that, because of the language barrier, and our fringe status, there have been very few ‘outsiders’ studying Finnish history. Furthermore, Swedes, Russians, and Germans all have their own prejudices and preconceptions when it comes to Finland.
    However, in equal measure, I would expect you to not to condemn the version “learnt” in Finnish schools outright, but based on its merits, or lack thereof. But I have to admit that even lukio students (having tutored a couple) are depressingly devoid of the analytical and critical mindset when it comes to history.
    Personally, I’m always more than happy to discuss Finland’s history, although my interest in the past is more directed to the Middle Ages and western Europe.

    And the new pic does look scary… Phillip Lee (or maybe Earl?) Schwarxmann, portrait of a serial killer ;)

  • philtard

    #22 , #26

    I think the key point is that finnish students are capable of discussing history, where as american people are not, since they couldn’t understand it in the first place.

    Still I’m saying Finland concerning ww2 (and previously) was in the position of having to deal with the both sides of the coin.

    Also we don’t try to blame our history on our fathers. I’m pretty sure if you ask americans about firebombings and hiroshima you either get them not knowing what you’re talking about, or then mumbling something about “..but it was like then..and they did it first..grumble grumble”.

    I can even go as far as say a victory for nazi germany would have done a great service for finland and europe if we consider how their loss has panned out.

  • pi

    @17 “Try to discuss Finlands performance in WW2, co-operation with Nazi Germany, Porkala and Soviet occupation post WW2, Kekkonen times hell even modern matters such as THE STASI LIST and the current President’s involvement and all you get is either the Party Line or the standard “you don’t know/understand because you’re a foreigner” reply.“..

    Sounds like Punter blustering liar and fool at it again… Remember you own response to discussion of the Aussie history regarding treatment of Aboriginies?..

    You are so typical of the ignorant sterotypical Finn that has no idea what is happening outside of Junntiville because your head is so far up your own arse that your neck is your ball sack. You speak crap about things you have no idea about and preach the perfection of this socialist homeland. Then when push comes to shove (after telling everyone that you’ve been to THE ARMY) you call the doorman and ask for help against some foreigner giving you shit. Seriously, I’m sick to death of people like you and the shit you stand for. All you do is bring down the decent people in this country and build stereotypes about Finns in general. Put your rubber boots on and go milk a cow Juntti.“.

  • Punter

    #27 Philtard- “I can even go as far as say a victory for nazi germany would have done a great service for finland and europe if we consider how their loss has panned out.”

    CAn you please clarify what you mean here? If it is what I read it as, I want to be 100% sure before I open up on you that we are reading it as the same. Clarify what you mean please.

  • Freeridin’ Franklin

    #28: It’s easy. We’d have
    -lower VAT
    -no alcohol retail monopoly
    -cheaper taxis
    -cheaper tools and construction materials
    -no car tax on our Volkswagens

    Oh, and if the Reich had made it as far as Australia, we wouldn’t have a problem with those “Katherine coons” you so despise.

    Deutschland über alles!

  • Anonymous

    But imagine what could have happened if the Allies had won. Stalin enslaving half of Europe, if not all of it. Then our Ladas would have waiting times worth years. Vodka would be cheap though.

  • Antti rn

    Well, the finnish leadership at that time was hoping Germany to defeat Soviet Union and the western allies to defeat Germany…

    But you don’t always get it your way, as mom said.

  • Anonymous

    @27: “I can even go as far as…”

    Wow you’re not doing any favors to the proponents of the Finnish educational system. Ever heard of the Generalplan Ost? Only a Nazi or a complete retard would say something like that.

  • acorn

    One advantage of closer contact with Germany would have been better mixing of the gene pool in Finland. It might have diluted some of the mental illness and alcoholism that is so prevalent today.

  • Freeridin’ Franklin

    One advantage of closer contact with Germany would have been better mixing of the gene pool in Finland.

    If you look at Berlin in 1945, a Red Army breakthrough in the isthmus would have also resulted in much-needed mixing of the gene pool.

  • http://www.verosirkus.com Sirkuspelle

    @15 Philtard: I don’t think you have ever lived in America.

    Fat and lazy can be used to describe some people, but that country does not run and was not built with fat and lazy people. There are probably the same percentage of fat and lazy people in Finland that are not productive to society, perhaps even more. Who knows.

    Culturally void, well, let’s see. I know South Florida, so I will use that as an example. In Sarasota, there is the Ringling Art Museum, which has a collection of Rubens, among other artists’ paintings. The museum was put there with private money from the Ringling brothers, who ran circuses. There is also the Van Wezel auditorium, where I have seen an opera and a symphony orchestra. In downtown Sarasota, there are restaurants, where you can go hear jazz being played. You can also get decent Italian, Mexican, Chinese, Japanese, Greek, etc. food. In St.Petersburg nearby, there is the Salvador Dalí museum, with the largest collection of his in the world. In Orlando, there is a different type of culture in Disney World, Sea World, Universal Studios, etc. Near there, there is the Nasa Space Center. Near Orlando is Ocala, where there is a nature theme park called Silver Springs. Down in Miami, you can eat in a Cuban restaurant for lunch and a Mexican one for dinner, each run by natives.

  • Punter

    Well pointed out Sirkuspelle but it is so much easier to stick with the common “no culture” opinion especially when it is told to us by people who have studied in “the world’s best system” and on top of that have been to the universiy of WIKI ;)
    The generalizations made by people with little/no knowledge is amazing and as I’ve mentioned before, works me up like nothing else. I’ve always said spending a week in a country can teach you more than studying it for a year.

  • tsuhna

    If you look at Berlin in 1945, a Red Army breakthrough in the isthmus would have also resulted in much-needed mixing of the gene pool.

    Don’t suggest anything like that to these simple WASP boys (and a girl). First of all they probably don’t understand what you mean – history isn’t exactly one of their strong points – and even if they did that would be against their naive, black-and-white world view. Uncle Sam’s boys were our friends so shut the fuck up or … !

    Otherwise I think that this is the kind of feel-good blog … a lot of positive energy radiating around here.

  • m

    Phil’s mugshot looks like a French playboy. I vote for keeping it.

  • Antti rn

    “It might have diluted some of the mental illness and alcoholism…”

    Mein gott! How about getting a hereditary inclination towards moustache metal, lederhosen and oompah in return. Now mental illness and alcoholism (or actually milder periods in them) have at least produced some renowed works of arts…

  • Fat Bastard

    36: Yes, the Americans have always been very good at buying and exploiting other peoples’ cultures. However, their own culture seems to veer more to the hedonistic and self indulgent. What culture have the actually given to the world? Hollywood? PT Barnum?

    Oh, Oh. I know! Jackson Pollock, the guy tried to paint and in his drunken stupor dribbled some paint on a canvas and called it art.

  • Freeridin’ Franklin

    What culture have the actually given to the world?

    Jazz and the atomic bomb is the standard answer.

  • aet75

    Pop culture?

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